Russian Central Bank May Hike Rates If Inflationary Risks Make A Meaningful Impact, Says Deputy Governor

The Bank of Russia could hike interest rates next year if inflationary risks such as labour shortages and import restrictions make a meaningful impact, according to Deputy Governor Alexei Zabotkin.

What Happened: “There is an understanding that if (a rate hike) is needed to stabilize inflation at 4% by 2024, then we will do this," reported Reuters citing Zabotkin’s interview with RBC.

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The Russian central bank had held its key interest rate at 7.5% during its final meeting of 2022 on Dec. 16. However, it slightly changed its rhetoric to acknowledge the growing risks of inflation, stating that a recent military mobilization was adding to labor shortages, the report said.

Structural Shift: Zabotkin highlighted high inflationary expectations, a labor crunch, logistical constraints, the higher-than-planned fiscal deficit trajectory and worsening external conditions as risks.

"Together, this is quite a large bouquet of pro-inflationary factors," Zabotkin said. "The need for raising rates will be dictated by (these factors), in whatever combination and in whatever volume they will eventually materialize in 2023," he added.

Zabotkin also stated that the Russian economy’s structural shift is a process that takes longer than a typical cyclical downturn.

"If the economy develops close to the upper range of our October base forecast, then we will return to the level of 2021 somewhere in 2025," he said according to the report.

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